Important Financial Terms

• Option – This is the right to do something, e.g., buy or sell a specified quantity of an underlying asset (“underlying”) at a fixed price at or before a specific date and time. It is important to note that this is a right and not an obligation; therefore, the holder of the option can choose not to exercise the right and thus let the option expire. Note that consideration must be paid to purchase this right, i.e., the option premium. The writer or seller of an option receives the consideration and is therefore OBLIGATED to perform an action.
  
• Long Call Option – this is the right to buy an underlying asset.
• Long Call – the buyer has the right to buy the underlying asset.
• Short Call – the writer (seller) has the obligation to sell the underlying asset.
• Long Put Option – this is the right to sell an underlying asset.
  
• Long Put – the buyer has the right to sell the underlying asset.
• Short Put – the writer has the obligation to buy the underlying asset.

• American Style – An option that can be exercised at any point up to and including the date and time of the option’s contracted expiration. This “early option” ability adds an additional layer of complexity, and thus value to American Options. Given the unknown variability of time in an American Option, the application of the Black-Scholes model is not applicable without adjustment.
• European Style – An option that can only be exercised at the contracted date and time of expiration.